Rules and discretion in public sector decision making are compared in a macroeconomic setting where there is a potential role for an active stabilization policy when the policymaker has private information about nominal shocks. The credibility of announcements about the state of nature is shown...

It is often hypothesized that costs of adjusting both price and quantities may have important implications for the macroeconomic adjustment process, not least to nominal shocks. We analyse this in an explicit intertemporal general equilibrium model considering the empirically relevant case of...

The ability of insiders to extract rents associated with exogenous turnover costs is addressed in a dynamic model. The higher these rents, the higher is the incentives for outsiders to obtain future insider status and, thus, to underbid current insiders. As a consequence, there is a lower limit...

This paper aims at identifying and quantifying different sources of persistency in employment adjustment. Based on a dynamic labour market model an explicit distinction is made between real and nominal (prices and wage) propagation mechanisms. The theoretical analysis provides the basis for an...

This paper analyzes the real and monetary effects of a shift in the exchange-rate policy in an economy where the private sector is uncertain about the true intentions of the government. In a finitely repeated game of incomplete information, the authors show that a shift towards a tight, fixed...

A classic result in dynamic public economics states that there is no welfare rationale for pay-as-you-go (PAYG) pensions in a dynamically-efficient neoclassical economy with exogenous labor supply. Parenthetically, a welfare justification for PAYG pensions exists if the economy is dynamically...

In this paper, we assume away standard distributional and static-efficiency arguments for public health, and instead, seek a dynamic efficiency rationale. We study a lifecycle model wherein young agents make health investments to reduce mortality risk. We identify a welfare rationale for public...